Sunday, December 20

It turns out that health care spending has not been driven up by runaway inflation but by runaway federal spending. Government is paying for a larger quantity of medical bills, not merely a rising price per procedure or product.

The Consumer Price Index for medical care slowed its growth dramatically in the 1990s, when federal health care spending was relatively contained. Medical care inflation slowed from nearly 10% at the end of 1990 to less than 3% in 1997, and it was only 2.8% over the past three months. Prices of medical services tend to rise faster than the CPI for the entire economy, but that is typical among all labor-intensive service industries. From 1996 to 2008 the CPI for physicians' services rose by 3.1% a year, for example, but prices of nonmedical services also rose by 3.1% a year.

You can see the bloating influence of government by looking at medical goods and services that are almost never financed by "free" government money: dental care, over-the-counter drugs, hearing aids and eyeglasses. In such cases nobody frets about inadequate competition, poor service or "runaway inflation."